Blacks Should Invest More, But Avoid U.S. Treasuries

Traditionally, investors around the world flocked to purchase U.S. debt in the form of treasuries. However, given the uncertain state of the U.S. economy, many investors have stayed away from them. Treasuries are direct obligations of the U.S. government, issued to finance its debt. They are available in several versions including treasury bills (T-Bills), treasury notes and bonds.

Although many have concerns regarding the stock market and how the current debt and recession may impact future returns, treasuries have become somewhat popular, especially for retail investors who have put large sums of money into bonds which has resulted in bond yields showing all time new lows. Especially treasury yields.

Add to this the fears that China — who holds much of the U.S. debt in treasuries — could do some major damage to the U.S. economy and world bond market if they decided to dump treasury bonds as a form of retaliation for U.S. protectionist measures or for fear that U.S. fiscal policies will undermine the value of their treasury bond holdings.

The best approach for blacks given this disinvestment is to save and invest more, but caution needs to be exercised and knowledge is critical.  Here are five reasons to avoid investing in treasuries at the moment.

1. The future is uncertain with regards to the actual value of the dollar. So we do not know if in the next few years the U.S. economy will be overtaken by a massive influx of foreign capital, which would have negative effects on the U.S. trade deficit and employment.

2.  The China question is based on the irrational fear and the fact that China has a massive amount of  U.S. government debt. If such fear continues, the result might be market and value  volatility. That is often the result of unfounded speculation and rumor.

3. Countries like Japan, China and Germany are experiencing growth in commodity exports. Having that capital may engender theirs and other foreign interest to purchase more U.S. debt in the form of treasuries, which would drive their value even lower.

4. As the U.S. trade deficit continues to expand in the form of importing more products than we export, the dollar will decline in value and the government will be reduced to importing more foreign capital.

5.  Around the world, most countries are actively diversifying currency reserves away from U.S. Treasuries, to protect them from a massive sell-off, if that occurs it’s up to the treasuries to protect the value of our national wealth.